Question
A parent company purchased a 90% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was
A parent company purchased a 90% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $322,000 in excess of the subsidiary's Stockholders' Equity on the acquisition date. This excess was assigned to a building that was estimated to be undervalued by $230,000 and to an unrecorded Customer List valued at $92,000. The building asset is being depreciated over a 10-year period and the Customer List is being amortized over a 5-year period, both on the straight-line basis with no salvage value. During the current year, the subsidiary declared and paid $103,500 of dividends. The parent company uses the cost method of pre-consolidation investment bookkeeping. Each company reports the following income statement for the current year:
Parent | Subsidiary | |
---|---|---|
Income statement: | ||
Sales | $12,650,000 | $1,380,000 |
Cost of goods sold | (8,510,000) | (828,000) |
Gross profit | 4,140,000 | 552,000 |
Income (loss) from subsidiary | 93,150 | - |
Operating expenses | (3,772,000) | (404,800) |
Net income | $461,150 | $147,200 |
a. Starting with the parent's current-year pre-consolidation net income of $461,150, compute the amount of current-year net income attributable to the parent that will be reported in the consolidated financial statements.
Do not usenegative signs with your answers below.
Reconciliation of Cost to Equity Method | |
---|---|
Parent's pre-consolidation net income | Answer |
Dividend Income | Answer |
P% x Net income of subsidiary | Answer |
P% x AAP amortization | Answer |
Net income attributable to controlling interest | Answer |
b. Prepare the consolidated income statement for the current year.
Do not usenegative signs with your answers below.
Consolidated Income Statement | |
---|---|
Sales | Answer |
Cost of goods sold | Answer |
Gross profit | Answer |
Operating expenses | Answer |
AnswerNet income attributable to noncontrolling interestsNet income attributable to the parentNet income | Answer |
Answer |
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